Buyer Beware

Nov 1, 2006

Five years on from Argentina's $100 billion default, the immense costs to the rest of the world have finally been totted up. Latin America risks paying much more.

Ecuador's 2006 presidential campaign rattled overseas
investors with talk of an Argentina-style restructuring. Buenos
Aires paid a hefty price for repudiation, but not enough to
dissuade other sovereigns from at least considering following
suit. A recent study estimates that taxpayers and shareholders
worldwide incurred $74 billion in direct and indirect costs
from Argentina's delinquency. And there is renewed pressure on
the major economies, in particular the US, to make Argentina
pay.

Junk rated sovereigns coasting on a wave of excess liquidity
have so far been spared retaliation from most investors. But
damage has been done to the emerging markets asset class and
the questions remain: How much did Argentina pay to scale back
its debt by 75%? And will other debtors push for similar relief
in the same manner?

Crime and Punishment

Beyond the obvious social costs to the country, Argentina
continues to suffer from default. And it has also...